France: Bad romance

3 min

The French debt bromance documented previously (see WERO 25 April 2018) took its toll on business insolvencies. A high level of corporate debt (above 72% of GDP in 2018), long payment terms (DSO at 74 days in 2017), high oil prices (+20% y/y in Q3 2018) and subdued domestic demand in 2018 (private consumption grew by +0.9% y/y and residential investment exhibited a stagnation in the first three quarters) have put French businesses under pressure. As a result, corporate margins decreased to 31.5% in Q2 (a three-year low) and activity halted suddenly in several sectors (e.g. turnover growth in the construction sector dropped from +10% y/y at end-2017 to +1.4% in July 2018). Household-driven sectors suffered in particular, propelling an increase in business insolvencies by +2.1% from the trough experienced in May until October (12-month cumulated cases). Construction, transportation, retail and wholesale trade exhibited the worst patterns. Household confidence reached a new low at 92 points in November, 8 points below the historical average. As a result, insolvencies are forecast to increase further by +2% next year, to a height +14% above the 2007 level.